Faye Keith Jolly of Deerfield Beach, Fla., applied for a $10 million life insurance policy with a division of The Phoenix Cos. Inc. in the winter of 2007.

He was 73 at the time, though Jolly claimed to be of healthy, athletic stock. He wrote a letter to the Hartford insurer saying his father had been a Chicago White Sox catcher and his mother an Olympic swimmer.

But by far the most impressive detail of his application was his purported net worth, $1.2 billion — and the nature of his assets.

Jolly claimed he had 10,920 pounds of uncut emeralds that he recovered 15 years earlier from a sunken Spanish vessel in the Gulf of Mexico — worth a cool $800 million. The other $400 million was in a trust, he explained in his application to PHL Variable Insurance Co.

Phoenix approved Jolly's policy in March 2007 after the company received reassurance from an independent agent and from the trustee of his trust that Jolly's claims were legitimate.

Then, just as time was running out for the insurer to contest Jolly's application, Phoenix sued Jolly in October 2008 in an Atlanta federal court. In the same action, Phoenix also sued the trust that would have received the money when Jolly died, and the trustee.

Phoenix alleged negligent misrepresentation, fraud and conspiracy. The company asked for payment for damages as well as attorneys' fees. In the end, the insurer did not have to pay out the $10 million Jolly's policy was worth when Jolly died on Feb. 6 of this year.

But the fight continues over premium money Jolly paid, as well as damages and other costs. And the far-fetched story of Jolly's emeralds is bringing a colorful sparkle to an otherwise drab corner of law and insurance.

The court battle involves allegedly forged appraisals, a history of plundered mines in Colombia's Andes Mountains that dates to the 16th century, underwater Spanish galleons chock full of riches, a trail of claims by Jolly that quickly grow cold, a mystery about where premium payments were coming from and an Atlanta attorney who said he once saw Jolly show off buckets of green stones.

No one involved is talking publicly. But at the heart of the story, as pieced together through court records, is the question of how Phoenix could have approved the policy in the first place. Jolly's application contained wild discrepancies and claims, many easily debunked.

Jolly first sought Phoenix life insurance in 2006, court records show, but the company didn't act on it. Martin R. Wetzler, an independent insurance agent in Boca Raton, Fla., filed a new application for Jolly in February 2007, trumpeting the emeralds found in a sunken Spanish galleon.

Jolly and attorneys acting on his behalf assured Phoenix by including appraisals of the jewels. The application also included paperwork detailing how the emeralds were shipped through a duty-free zone and were held in bonded warehouses in Southampton, England, then later transferred to another facility in Felixstowe, England.

"Mr. Jolly is one of the top 5 Treasure Hunters in the World, having discovered a treasure of emeralds with an estimated value of $700mm+," Wetzler wrote in an e-mail to two Phoenix employees.

"Regarding Mr. Jolly's financial situation, and your request for tax returns, because of the complex, sophisticated and confidential nature of his assets, their taxation and his estate plan, there will be no tax returns forthcoming," Wetzler wrote to Phoenix.

Wetzler told Phoenix that Jolly discovered his emeralds while working with famed treasure hunter Mel Fisher before Fisher died in 1998. Fisher was well known for his discoveries off the Florida Keys, including some of the ships in a Spanish fleet that were battered and scattered during a hurricane in September 1622.

After agreeing to sell the policy to Jolly, Phoenix paid Wetzler a fee of $412,116, court records show.

Three years later, in 2010, a federal judge in Atlanta ordered the policy rescinded, agreeing with Phoenix — although he rebuked Phoenix for missing "red flags."

Phoenix "never attempted" to use "'traditional tools of income and net worth verification" by obtaining information about Jolly's bank account and primary residence or by contacting his accountant to learn his net worth and income, U.S. District Judge G. Ernest Tidwell said in his order.

The remaining lawsuit will determine who gets to keep the $484,843 that Jolly's trust paid as its first and only premium back in April 2007. The court ordered the cash returned to the trust as part of the policy rescission, and the money is now in the court's possession.

Phoenix is also seeking damages, because the company has incurred more than $400,000 in attorney's fees in this case, not to mention the $412,116 it paid Wetzler.